SNB: Tschudin Commentary A Re-iteration; Martin Due Next Week

ERZ6 is currently at 97.175 (i.e. 3m Euribor rate of 2.825%), but the options-implied risk-neutral probability of a more hawkish outturn has increased through July – see the dark blue bar relative  to the light blue bar on the chart. 

• For now, our calculations don’t point to as large a hawkish tail risk now compared to mid-May. This seems reasonable given front-month crude prices at ~$94/bbl remain below the ~$110/bbl levels seen a few months ago.
• That said, the surge in gas prices has been notable amid the latest re-escalation in the Middle East, with front-month TTF now at a year-oto-date high of E62/Mwh.
• How Lagarde characterises upside inflation risks in the context of much higher gas prices will be one area of interest at tomorrow’s press conference. 

House Republican leadership have teed up key votes at 13:30 ET 18:30 BST on the 2027 National Defense Authorization Act and the budget blueprint from the GOP's USD$95 billion defence-focused reconciliation package. If the NDAA passes, it will be merged with elements of President Donald Trump's voter ID bill (SAVE America Act) and handed to the Senate. 

• The budget resolution will be the trickiest vote for Speaker Mike Johnson (R-LA), with Rep Thomas Massie (R-KY) declaring himself a ‘no’: “It’s a slush fund for the unauthorized Iran war with a payoff to farmers who are suffering from fuel and fertilizer price hikes due to the war...” He said.
• The budget resolution and NDAA, along with a short-term measure to fund the government which passed yesterday, face an uncertain future in the Senate after Majority Leader John Thune (R-SD) rejected Johnson's partisan approach to government funding, suggesting such a strategy would run up against unanimous Democratic opposition in the Senate.
• Thune indicated he wouldn’t advance the House’s budget resolution until the Senate figures out a government funding solution, saying he would instead put a bipartisan government funding measure on the floor before the August recess. The implied probability of a government shutdown in October remains elevated at roughly 50%, despite passage of the House funding bill, per Polymarket.
• Republicans pushed the NDAA to the right yesterday, with the House Rules Committee approving 320 amendments as the usually bipartisan Pentagon bill increasingly becomes a vehicle for partisan policy riders.

Figure 1: Government Shutdown by October 1

Source: Polymarket

Belgium has announced it will be looking to sell the following at its auction next Monday, July 27:

• the 3.10% Aug-31 OLO (ISIN: BE0000368770)
• the 3.00% Jun-33 OLO (ISIN: BE0000357666)
• the 3.10% Jun-35 OLO (ISIN: BE0000363722)